CASE 2 : Club Med
Case: On May 27th 2013, the main shareholders of Club Med, Fosun, a Chinese investment management company and Axa Private Equity, announced their intention to launch a joint takeover on Club Med, through a common holding company, Gaillon Invest, at a price of 17 euros per equity share and 19.23 euros per convertible bond which had been outstanding in the market. The project was filed with the AMF on May 30th 2013 and the price offered was increased to 17.50 euros for the equity share and to 19.79 for the convertible bond. Due to opinions rendered by the AMF in July 2013, the project wa amended several times, respectively in June 2014 and in January 2015. The takeover by Gallion Invest on Club Med was eventually achieved on the 5th March 2015. At the issue of this operation, Gallion Invest held 98.29% of the equity shares and 96.40% of the convertible bonds issued by Club Med. In August 2013, the AMF decided to prompt an investigation in relation with the Club Med securities following some suspicious transactions observed from April to May 2013. According to this investigation, it appeared that on April 10th 2013 at the latest, the projected takeover of Club Med by Gaillon Invest was inside information in nature, according to regulation 621-1 of the AMF regulation. Indeed, the information was 1) precise, to the extent that the discussions on the practical conditions of the operation were well advanced: the structure, governance and pricing were known, a list of insiders had been set up, and the banks involved in the transaction had signed confidentiality agreements; 2) non-public until its disclosure on May 23rd 2013; and 3) the price offered, at 17 euros entailed a 23% premium compared to the average price of the stock since the beginning of year 2013. Finally, the information was likely to reassure investors as to the company’s development prospects, in particular in China. From May 3rd to May 22nd 2013, Mrs Yan Lin purchased 51,800 Club Med equity shares at an average cost of 13.21 euros. Mrs Lin had been opening an account with ANZ Private Bank in Hong Kong (“ANZ”) on March 12th 2013. This account was funded on May 3rd in view of the purchase of the Club Med shares. The securities were sold at an average price of 17.01 euros, resulting in a capital gain of 196,095 euros. At the date of the facts alleged, Mrs Lin was the vice-chairman and CFO of Tebon Securities Co Ltd (“Tebon”), a Chinese financial services provider, and Fosun was one major shareholder of Tebon. Mrs Lin knew personally Mr Guo Guangchang, the CEO of Fosun. On its website Tebon mentioned that it was using the expertise and resources of Fosun with which it maintained regular contacts. Fosun and Mrs Lin were thus in professional relationships. The examination of Mrs Lin’s financial instruments account statements from May 1st, 2013, to December 31st, 2015, suggested that Mrs Lin invested only in company originated from China and Hong Kong and that her investments were not related to the industry of tourism. The amounts invested were significantly lower than the amount invested in Club Med. Mrs Lin was audited by the China Securities and Exchange Commission. During this audition, she declared that she held lots of equity shares in Northern America, Australia and Hong Kong but very few in continental Europe. She also declared that she held a financial instruments account with HSBC, this being dedicated to investments in foreign currencies. However, this could not be confirmed by any document provided by Mrs Lin to prove the existence of this account. On April 29th, April 30th and May 2nd, 2013, Forever Winner International Development Ltd (« FWI »), a company incorporated in Hong Kong, purchased 70 000 Club Med equity shares, on the initiative of its CEO, Mr Guoliang Yao. The securities were sold on the 27th of May, the day of the takeover, at an average price of 17.01 euros, resulting in a capital gain of 285 995 euros. During her audition, Mrs Lin was asked about her professional relationships with Mr Yao and she declared that she had been in contact with him in 2008 when she was appointed as a member of the Board of Strong Petrochemical Holdings Limited (« Strong Petrochemical »). At the time, Mr Yao served as CEO of Strong Petrochemical. She also declared that she was not in business relationship with Mr Yao except during one or two meetings per year. On April 29 th, and May 7th, 2013, Mr Yao purchased 79,387 equity shares for his personal account at an average cost of 12.96 euros. The securities were sold on the 27th of May, the day of the takeover, at an average price of 17.02 euros, resulting in a capital gain of 323,941 euros. The examination of the financial instruments account of FWI showed that this company managed a total amount of 53 934 907 HKD (that is 1.9 million euros) and had been purchasing equity shares for a total amount of 4.8 million euros from January 1st to May 31st, 2013. Amounts of each investment could be greater than 1.9 million euros. Hence, at 900,000 euros, the amount of the Club Med purchase was not exceptional. However, before the litigious investment, FWI had never invested in a European company, nor had it invested in the tourism industry. The quasi-total amount of transactions concerned the energy industry.
Question 1) Remind the definition of “inside information” and the obligations which apply to insiders according to the AMF general regulation.
Question 2) When did the takeover project of Club Med by Gaillon Invest become inside information and why? When did the project cease to be inside information and why?
Question 3) In its analysis, the AMF examines several considerations in order to prove the violation of its rule regarding the obligations made to insiders by Mrs Lina and Mr Yao. Please identify and explain these considerations.
Question 4) Why is FWI also alleged of a violation of the obligation to refrain from using inside information?
Question 5) Mrs Lin and Mr Yao live and work in Hong Kong. In addition, it is very unlikely that the Chinese investors consult the AMF website. In which legal framework could the AMF pursue them and to which extent can the sanction bear consequences for them?